What is a revolving line of credit?

A revolving line of credit is a type of loan that allows borrowers to access a set amount of funds that they can use as needed. The loan is typically repaid over time with fixed monthly payments, and the borrower can reborrow the funds as they are repaid. Revolving lines of credit are often used by businesses to finance short-term expenses, and by individuals to consolidate debt or cover unexpected expenses.

What are the benefits of a revolving line of credit?

Revolving lines of credit offer borrowers a number of advantages, including the following:

  • Access to funds: Borrowers can access the funds they need as they need them, up to the limit of the loan.
  • Flexibility: Revolving lines of credit offer borrowers more flexibility than other types of loans, such as term loans. With a revolving line of credit, borrowers have to make payments only on the funds they actually use, rather than the full amount of the loan.
  • Lower interest rates: Many revolving lines of credit have lower interest rates than other types of loans.

What are the drawbacks of a revolving line of credit?

While revolving lines of credit offer borrowers a number of advantages, there are also some potential drawbacks to consider, including the following:

  • Interest payments: While the interest rates on revolving lines of credit are typically lower than those on other types of loans, they are still higher than the rates on most savings accounts or conservative investments. This means that borrowers will have to pay more in interest over time if they keep the loan outstanding.
  • Fees: Revolving lines of credit may also come with fees, such as annual or maintenance fees, which can add to the cost of the loan.
  • Risk of overspending: Because borrowers can access the funds they need as they need them, there is a risk of overspending and taking on more debt than can be easily repaid.

How can I get a revolving line of credit?

There are a number of ways to get a revolving line of credit, including the following:

  • Banks and credit unions: Many banks and credit unions offer revolving lines of credit to their customers.
  • Online lenders: There are a number of online lenders that offer revolving lines of credit to borrowers.
  • Peer-to-peer lenders: There are also a number of peer-to-peer lending platforms that offer revolving lines of credit to borrowers.

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